The Illegality of the Greek Sovereign Debt Crisis ...

Journal of International Business and Law

Volume 16 | Issue 1 Article 12

5-1-2016

The Illegality of the Greek Sovereign Debt Crisis:Contract Law's Response to the GreekGovernmentParis GyparakisMaurice A. Deane School of Law at Hofstra University

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THE ILLEGALITY OF THE GREEK SOVEREIGN DEBT CRISIS:CONTRACT LAW'S RESPONSE TO THE GREEK

GOVERNMENT

By Paris Gyparakis *

I. INTRODUCTION

Greece is imperiled with one of the most disquieting economic states in its modernhistory. The debt of roughly E300 billion, 1 which encompasses approximately 180% of theGDP,2 has fostered not only a depressed economy, but social and political upheaval whichhas amounted to an equally concerning humanitarian crisis as well. The country onceconsidered "the privileged topos [of] European imaginary",3 is now besieged with scathinginternational criticism and scolding media attacks by their European counterparts.4 It appearsas though all eyes are on Greece, with the question being "Will Greece ever recover?" and"What would that recovery look like?" 5

The causes of the Greek debt crisis are deeply rooted in its history and subject toscholarly debate.6 However, the wake of the global financial crisis in 2008 highlighted theseverity of the debt, which confronted Greece with an imminent solvency crisis, : and theinternational community with an imminent currency crisis. Greece, on the brink of default,

*J.D. Candidate, Maurice A. Deane School of Law at Hofstra University, 2017. I would like to thank ProfessorMiriam R. Albert and my colleagues in the Journal of International Business & Law for their unconditionalsupport and contributions to this note.1 See General Government Gross Debt - Annual Date, EUROSTAT (Nov. 9, 2015, 1:30PM),http://ec.europa.eu/eurostat/tgm/refreshTableAction.do?tab--table&plugin=l&pcode-teina225&language=en;see generhlly EUROPEAN COMM'N, GREECE: RECOVERY BACKED By DOMESTIC DEMAND AND EXPORT, 86(2016), http://ec.europa.eu/economyjfinance/eu/forecasts/2016_autumn/elen.pdf.2 id.

' See GREGORY JUSDANIs, BELATED MODERNITY AND AESTHETIC CULTURE: INVENTING NATIONALLITERATURE 13 (2012).4 See, e.g., Tony Paterson, Greece Debt Crisis: German-Greek Relations Slump Further After Der SpiegelMagazine Cover Prompts Controversy, INDEPENDENT (July 15, 2015),http://www.independent. co.uk/news/world/europe/greece-debt-crisis-german-greek-relations-slump-further-after-der-spiegel-magazine-cover-prompts-10388792.html (citing German newspaper headlines such as "Selloff your islands you bankrupts!" and "We Germans can pay off our debts because we get up and go to work!").' See generally Dominique Venetsanopoulos, The Trillion-Dollar Question: Can Greece Be Saved?, 19 ILSAJ. Int'l & Comp. L. 69 (2012).6 See generally MICHAEL MITSOPOULOS & THEODORE PELAGIDIS, UNDERSTANDING THE CRISIS IN GREECE:FROM BOOM TO BUST (2011) (referring to some of the contributory factors leading to the current economiccrisis. Namely, a corrupt political system, an uncompetitive economy, and rampant tax evasion); PANAGIOTISPETRAKIS, THE GREEK ECONOMY AND THE CRISIS: CHALLENGES AND RESPONSES (2012) (referring to both thefiscal and political causes, however attributing the crisis mostly to the progressive tax system of Greece).7 See generally Kevin Featherstone, The Greek Sovereign Debt Crisis and EMU: The Falling State in a SkewedRegime, 49 J. COMMON MKT. STUD. 193, 199 (2011) (stating that George Papakonstantinou, then financeminister of Greece, announced a tripling of the 2009 debt).

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Gyparakis: The Illegality of the Greek Sovereign Debt Crisis: Contract Law's

Published by Scholarly Commons at Hofstra Law, 2016

THE JOURNAL OF INTERNATIONAL BUSINESS & LAW

sought assistance from its Eurozone members8 and financial institutions in the form of

"bailout loans."9 To date, three major bailout loan packages have distributed over £300 billion

to Greece since 2010,10 and were negotiated between Greece and the "Troika," a pseudonym

for the tripartite coalition of financial institutions comprised of the European Commission

("Eurogroup"),11 the European Central Bank ("ECF"), and the International Monetary Fund

("IMF").The first of these packages, "the 2010 Agreements" was signed on May 2, 2010, and

consisted of three loans totaling over £110 billion in disbursements. 12 Subsequently, "the

2012 Agreements" ensued for 6130 billion, as well as "the 2015 Agreements" for an

additional 86 billion. 13 In exchange for these loans, Greece has signed various agreements,14

promising to implement a number of austerity measures imposed by the Trioka. 15 These

austerity measures however, have proven to be onerously harsh for the Greek people, and the

focal point of much of the Greek crisis discussion, as they have not seemed to help Greece

yet, which still faces rampant unemployment rates over 25%, 16 including 46% of its youth. 17

Of course, the idea of a sovereign debt crisis is not a new phenomenon in

international finance by any means. Argentina was imperiledwith $93 billion of debt before

"Eurozone" refers to various EU member states whose currency is the Euro. See Rosa M. Lastra, The

Evolution of the European Central Bank, 35 FORDHAM INT'L L.J. 1260, 1261 (2012) (defining the termEurozone).

9 In this context, the term "bailout loans" refers to countermeasures to the Greek- government debt crisis,

known formally as "Economic Adjustment Programmes," by European economists. See Explaining Greece'sDebt Crisis, N.Y. TIMES (June 17, 2016),http://www.nytimes.com/interactive/2016/business/intemational/greece-debt-crisis-euro.html?r=0 (last visited

Jan. 2, 2017).10 See Economic and Financial Affairs (EC), Financial Assistence to

Greece, http://ec.europa.eu/economyfinance/eu/countries/greece-en.htm (2015) (outlining all Financial and

economic support packages for Greece).

" Comprised of nineteen Eurozone member states.12 See Intercreditor and Loan Facility Agreement, under Euro Area Loan Facility Act 2010, (May 20, 2010),

https://www.oireachtas.ie/documents/bills28/acts/2010/a710.pdf (last visited Jan. 10, 2017) (pertaining to the

2010 agreements, which had a principal balance of €80 billion), Economic and Financial Affairs (EC),

Financial Assistence to Greece, http://ec.europa.eu/economyjfinance/eu/countries/greeceen

.hIm (2015) (outlining the First Economic Adjustment Programme for Greece, and the joint package, with the

IMF committing the additional €30 billion under a stand-by arrangement for a total of E110 billion).13 See generally, Master Financial Assistance Facility Agreement, (Dec. 12, 2012),

http://www.efsf.europa.eu/attachments/efsf__greecefafa.pdf (last visited Jan. 16, 2016) (pertaining to the 2012

Agreements); Memorandum of Understanding Between the European Commission Acting on Behalf of the

European Stability Mechanism and the Hellenic Republic and the Bank of Greece, Aug. 19, 2015,

http://ec.europa.eu/economyjfinance/assistance-eu-ms/greek loan facility/pdf/0 lmou 20150811 en.pdf(last visited Jan. 10, 2017) (pertaining to the 2015 Agreements).

14 Known collectively as the Memoranda of Understanding ("MoU"). See infra note 16.

'5 See discussion infra Part W.A.16 See EUROPEAN COMM'N, supra note 1.17 EUROSTAT, Youth Unemployment Rate in Europe (EU member states) as of July 2016 (seasonally adjusted),

Statista, http://www.statista.com/statistics/266228/youth-unemployment-rate-in-eu-countries (last visited Jan.

10, 2017).

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Journal of International Business and Law, Vol. 16, Iss. 1 [2016], Art. 12

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THE ILLEGALITY OF THE GREEK SOVEREIGN DEBT CRISIS

defaulting in 2002, while Ecuador part-defaulted in 2008 with over $13 billion of debt."8

However, the story in Greece is unique by virtue of its Eurozone membership, and theimbroglio created between Greece as a sovereign state, and its fellow Eurozone creditorcounterparts.19 As several have noted, sovereign debt crises are radically different within a

20monetary union such as the Euro, as no individual nation has control over the currency.Simply put, European countries have more to lose than their investments, as their owncurrency may be at the caprice of sovereign defaults, not only by Greece, but also by othersimilarly situated countries like Italy, Spain and Portugal.21 Their interest in avoiding a Greekdefault, is their interest in ensuring the stability of the currency, and managing defaultcontagion within the Eurozone.22 In addition, a Greek default, forcing Greece to leave theEurozone against the people's wishes, will pose social and humanitarian concerns that nobodycan seem to fathom.23

Contemporary proposals to address the Greek crisis have included: abandoning theEurozone and European Union entirely, the so called "Grexit," which still enjoys popularityin Greece amongst the left; declaring bankruptcy, a question whose potential outcomes have

24agonized international legal scholars for decades ; and even a solution found in macro-economic computer game theory, espoused by former Greek Minister of Finance YanisVaroufakis.25

18 Daniel Ozarow, A "Velvet Grexit" is a Trick. Argentina, Ecuador and Iceland Prove Default Can Work,

OPEN DEMOCRACY (July 23, 2015), https://www.opendemocracy.net/democraciaabierta/daniel-ozarow/"velvet-grexit"-is-trick-argentine-ecuador-and-iceland's-proves-defa.1" See generally Michael G. Arghyrou & John D. Tsoukalas, The Greek Debt Crisis: Likely Causes, Mechanicsand Outcomes, (Cardiff U. Bus. Sch. Working Paper S. E2010/3, Apr. 2010), https:/orca-mwe.cfac.uk/77853/1/e2010 3.pdf.20 See e.g., Paul De Grauwe, The Governance of a Fragile Eurozone (Ctr. for Eur. Policy Studies, WorkingPaper No. 346 2011).21 Id.22 Id.; EUROPE'S CRISIS, EUROPE'S FUTURE 1-20 (Kemal Dervis & Jacques Mistral eds., 2014).23 1 must note, albeit parenthetically, that the cultural implications that would result in a Grexit, relate to a far-reaching plight in Neohellenistic Identity. The theory of continuity, which traces the glory of the ancient Greekcivilization as is emerges through the Byzantine and into modem Greece, has been coupled with an immenseamount of cultural pride with being considered "European" for modem Greeks, which has existed since theNeohellenic Enlightenment. See generally GREGORY JUSDANIS, BELATED MODERNITY AND AESTHETICCULTURE: INVENTING NATIONAL LITERATURE 13-30 (2012), STATHIS GOURGOURIS, DREAM NATION:ENLIGHTENMENT, COLONIZATION AND THE INSTITUTION OF MODERN GREECE 141-174 (1996).24 Mostly because there is no currently accepted international regime which allows a sovereign to declarebankruptcy. For a detailed analysis on the issue of a global bankruptcy mechanism and respective internationallaw policies see Alice de Jonge, Returning to Fundamentals: Principles of International Law Applicable to theResolution of Sovereign Debt Crises, 36 SUFFOLK TRANSNAT'L L.REv. 1, 35-41 (2013) (exploring the popularproposals for an independent oversight body: including the U.N Conference on Trade and Development(UNCTAD) proposal, and the IMF's Sovereign Debt Restructuring Mechanism (SDRM) proposal amongothers); see also Adam Brenneman, Note, Gone Broke: Sovereign Debt, Personal Bankruptcy, and aComprehensive Contractual Solution, 154 UPA. L. REV. 649, 670-684 (2006).25 See Adam Bouyamoum, Yanis Varoufakis Saw the Answer to Greece's Euro Crisis in Computer GameEconomy, THE NATIONAL (July 29, 2015) (reporting that the proposed theory comprises of a digital paymentssystem and online settlement platform, which would replace paper money and can be controlled by the Greekgovernment. This was inspired by Team Fortress (TF2) game company Valve; who's digital form of currencyis related to the number of goods available).

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THE JOURNAL OF INTERNATIONAL BusINEss & LAW

However the most controversial solution was made by the Greek government itself,

after a parliamentary committee's public debt audit officially declared the Greek debt as

"illegal, illegitimate, and odious."26 The report, which cites a series of findings and research,

concluded that because of the illegitimacy, illegality, and odiousness of the debt, the Greek

government is entitled to unilateral revocation of its bailout loan agreements. 27 The big

question has now changed to "Is the Greek debt illegal, illegitimate and odious?" and, more

importantly, "If so, does this entitle Greece the remedy of unilateral revocation?"

Of course, the question still remains whether the Greek government plans on acting

upon this purported revocation right, or whether the report was only intended to put pressure

on Greece's creditors to accede to their demands, as it just happened to be published at a

fraught time during Greece's negotiations with creditors.2" At least one news source has

proposed that the impetus of the report was most likely strictly political, and that the intended

audience was always meant to be domestic, so that in the event of a Greek default and

subsequent Grexit, the government could blame it on its creditors, with a well-wrought

narrative as support.29 In fact, the assertions made in the report, although incorporate legal

terms, are perhaps to be better understood as political statements, as opposed to sound legal

arguments, as very few legal authorities are actually cited.30 The legal terms that do appear

are merely used adjectivally, to describe various allegations, and not nounally, as they do not

relate to corresponding illegality doctrine per se. Irrespective of their use, they elucidate

issues related to the legal theory of discharging contractual obligations, and it is through this

analogy that this Note will assess the allegation's validity. As such, this Note focuses on the

contract defense claim of illegality in the context of the specific loan agreements, not the

odious debt doctrine, which has enjoyed relentless scholarly exposure,31 nor claims made

based on international law, in an effort to avoid greater implications that accompany treatyinterpretation in the context of sovereign debt. 32

Here, the loan agreements will be viewed as strict contractual instruments, when

analyzing whether or not the Greek Government is entitled to unilateral revocation of their

loan agreements, as they claim, under traditional Anglo-American contract law. As one might

26 See Hellenic Parliament Truth Committee on Public Debt, Preliminary Report, (Apr. 5, 2015) (Greece),http://www.hellenicparliament.gr/UserFiles/f3c70a23-7696-49db-9148-f24dce6a27c8/Report-web.pdf.27 Id. ("All the evidence we present in this report shows that Greece not only does not have the ability to pay

this debt, but also should not pay this debt [...] because it is illegal, illegitimate, and odious").28 See STRATFOR GLOBAL INTELLIGENCE, What it Would Take to Rule Greece's Debt Void (July 5, 2015),https://www.stratfor.com/analysis/what-it-would-take-rule-greeces-debt-void.29 See id.30 See generally id.

" See Evelyn Angelo, Greece & the Odious Debt Doctrine, 78 BROOK. L. REV. 1619 (2013); see also Lee C.Buchheit et al., The Dilemma of Odious Debts, 56 DUKE L.J 1201 (2007), Christiana Ochoa, From Odious Debtto Odious Finance: Avoiding the Externalities of a Functional Odious Debt Doctrine, 49 HARv. INT'L L.J 109(1991) (outlining the history and development of the odious debt doctrine: The odious debt doctrine extendsback to the 1920's, and has been invoked in several similar cases of sovereign debt crisis in Zaire and Ecuador,however there has never been a ruling overriding the debt under the odious debt doctrine, and it appears asthough the international legal community has yet to define its applicability precisely.)32 For a discussion pertaining to the legality of the European Union's authority to impose austerity measuresunder International Law. See generally Joanna Pagones, Note, The European Union's Response to theSovereign Debt Crisis; Its Effect on Labor Relations in Greece, 36 FORDHAM INT'L L.J. 1517 (2013)(concluding that fundamental EU treaties do not authorize the European Union within their scope of authorityto infringe upon Greece's sovereignty to save the Euro).

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imagine at the outset, the answer to the question is probably not. However, the claimsthemselves merit our attention, as they evoke critical questions pertaining to the politics oflaw, and more importantly, loan agreement interpretation and enforceability in an ever-changing international financial market.

II. THE TRUTH COMMITTEE ON PUBLIC DEBT

On April 4, 2015, the president of the Hellenic Republic, Ms. Zoe Konstantopoulou,established the Truth Committee on Public Debt ("Committee"), a parliamentary sub-committee aimed at investigating the nature and circumstances surrounding the public debt ofGreece, and specifically, the validity of Greece's loan agreements.33 The Committee includes35 international experts in the fields of law, economics, accounting and banking under theteam's scientific coordinator Eric Toussaine,34 senior lecturer at the University of Liege.35

The Committee released its first publication, The Preliminary Report ("Report") on June 18,2015, which served as a public debt audit, outlining the so-called "black box" of debt and itsrespective problems from inception to current implementation, before characterizing it as"illegal, illegitimate, and odious."36

When viewed collectively, the Report asserts, by name, a number of defensesrecognized and well defined in contract law. These include coercion, fraud, misrepresentation,breach of the duty of good faith, undue influence, unconscionability, illegality, and illegalassignments. 37 It claims that these doctrines, both independently and collectively, justifyrevocation of the loan contracts. Under Anglo-American contract law, these allegations are allappropriately analyzed under the doctrine of unconscionability, which holds that a contract orclause will be found unconscionable, and thus voidable, when it is so shockingly unfair oronerously one-sided under the circumstances existing at the time of the making of thecontract.38 However, before analyzing these specific illegality claims, a decisive distinctionregarding contract interpretation theory merits priority in this discussion; as the very nature ofthe contracts themselves, directly affect not only how they are viewed and analyzed, but evenwhich defenses can be raised against them.

III. THE EVOLUTION OF CONTRACT LAW

Legal scholars have long recognized that differences between various types ofcontracts should not only be acknowledged by the courts, but also reflected in substantivelaw. 3 Consequently, three theories of contract law have latently developed within the

3 See generally Hellenic Parliament Truth Committee on Public Debt, supra note 26.3 See Ozlem Onaran, Should Greece Pay Back its Debt?, SOCIALEUROPE.EU (Apr. 23, 2015),https://www.socialeurope.eu/2015/04/greece-pay-back-debt.35 Robert Stevens, International Viewpoint, Syriza and the Fraud of Greece's "Truth Committee" on Debt,World Socialist Website (wsws.org) (Aug. 4, 2015) https://www.wsws.org/en/articles/2015/08/04/gree-a04.html.36 See generally Hellenic Parliament Truth Committee on Public Debt, supra note 26.17 See generally id

38 See generally RESTATEMENT (SECOND) OF CONTRACTS (1981).39 Professor Ian R. Macneil was one of the first to conceptualize that different types of contracts were neededto address diverse needs of various parties See generally Ian Macneil, Restatement (Second) of Contracts and

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academy, and distinguish contracts based on two critical characteristics: the duration of the

agreements, and the degree of discreteness between the parties.40 The first theory, classical

contract law, was developed in the nineteenth century based on the writings of Samuel

Williston's The Law of Contracts,41 and is espoused by the Restatement of Contracts.42 This

theory is known to govern short-term, discrete transactions best,43 as its strict and formal

structure, limits interpretation of the agreement to the "four comers" of the document,

practically ignores the identity of the parties, and draws clear and explicit rules of

interpretation.44 It is the very nature of these discrete transactions that support the traditional

classical contract remedy: unilateral revocation, the power to rescind or cancel a contract. The

theory behind this is that most risks of change that occur within the confines of short and

relatively simply transactions must be borne on a particular party to be effective.45

In light of the increasing role of ongoing contractual relations in the United States

economy, neoclassical contract law developed in time, as a slight modification.46 This theory,

adopted by the Restatement (Second) of Contracts47 and the Uniform Commercial Code

("UCC"), 4s has been cited as recognizing the interests of parties engaged in more long-term

contracts, and creates flexibility in agreements where the explicit terms may not adequately

address future problems. 4' By augmenting third-party rights and allowing gap-filling

provisions to embody industry norms, the neoclassical theory defends the party's intent and

freedom to contract from frivolous defenses.5" It recognizes value in the "course of conduct"

between the parties, as an indicator when interpreting its terms, which may even serve to"amend" the written terms when parties have consistently deviated from them.51 It follows

that remedies associated with neoclassical theory were crafted to address this less desirable

need to terminate the relationship. One such remedy is exempting benign contractual

deviations from constituting a breach, such as the harmless late tender of the delivery of

goods for example, and a limited availability of specific performance as a potential remedy. 52

Presentation, 60 VA. L. REv. 589 (1974), Ian R. Macneil, Contracts: Adjustment of Long-Term EconomicRelations Under Classical, Neoclassical, and Relational Contract Law, 72 Nw. U.L.REv. 854 (1978).40 See Ian R. Macneil, Contracts: Adjustment of Long-Term Economic Relations Under Classical,

Neoclassical, and Relational Contract Law, 72 Nw. U.L.REv. 854, 855 (1978).41 See generally SAMUEL WILLISTON, THE LAW OF CONTRACTS (1920).42 See Macneil, supra note 40, at 855 n.2.43 See id. at 856-57 (characterizing discrete transactions as typically those with little personal involvement of

the parties, where communication is largely linguistic and limited to the subject matter of the transaction, and

where the exchange consists of a easily liquidated commodity and money and no significant past relations norlikely future relations, "For example, a cash purchase of gasoline at a station on the New Jersey Turnpike by

someone rarely traveling the road is such a quite discrete transaction").44 See id. at 863.

" See id. at 883.46 Keith A. Palzer, Relational Contract Theory and Sovereign Debt, 8 Nw. J. INT'L L. & BUS. 727, n. 13 (1988)

(citing Ian R. Macneil, Contracts: Adjustment of Long-Term Economic Relations Under Classical,Neoclassical, and Relational Contract Law, 72 Nw. U.L.REv. 854 (1978)).47 See generally RESTATEMENT (SECOND) OF CONTRACTS (1981).48 See generally U.C.C. (1977).41 Palzer, supra note 46.50 See Macneil, supra note 40, at 880-83.51 See generally id.

52 See id. at 880.

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An example from the UCC is that a seller aggrieved by a buyer's breach of unfinished goods,has the option to allow the complete manufacture of goods, or cease and resell for scrap orsalvage, the value of what has been produced.53 This contrasts greatly from the analogousclassical contract remedy of simply suing for breach of contract, as it gives the non-breachingparty the power to avoid the travails of non-performance if it would better suit their interest.

Recognizing that traditional contract law theories still limit the parties generally tothe explicit terms of the contract, the need for even greater flexibility in certain contextsendured. 54 Thus, relational contract law was conceptualized to deal with the complexities oflong-term, and multi-faceted relationships. " Unlike classical structure theories, relationalcontract theory focuses on the ongoing relationship and past history of the parties, and notsolely the agreement's terms. 56 This differs from neoclassical theory, which althoughaddresses the needs of parties in an ongoing exchange, is still subject to the contours of thedocument. Consequences of breach and litigation under relational contract law are replacedby social and political adjustment, separate from governmental intervention, usually in theform of arbitration or mediation.57 This enables the actual relationship of the parties, theirhistory, customs, interpretations and expectations to provide the internal rules for disputeresolution, as opposed to state law. 5' These private negotiation remedies, although differgreatly from traditional remedies and adjudication, are nevertheless grounded in contract law,as their theoretical contours are set by the same juridical instrumentals accepted as binding, toallow for realistic and practical results.59

When considering the Greek loan agreements, it follows that proper classification ofthe contracts in question is of great importance, as it dictates the applicable theory ofsubstantive law and the available remedies that follow. However, it is the purpose of this Noteto address the claims made by the Greek government as would a competent court; namely, aspleaded in the complaint (Report). To this end, each claim will be addressed under the samesubstantive legal doctrine used by the Greek government in making their claims, beginningwith the substantive claims of illegality, those found within the contracts themselves,followed by the procedural claims, those which arise from the bargaining and enactmentprocess.

13 See id. at 880 (citing U.C.C. §2-704).54 Used in this context the term "traditional contract law" refers to both classical and neoclassical theories seeMacneil, supra note 40, at 854, n.2.5 See Macneil, supra note 40, at 886-901.56 See id. at 886-901.17 See id. at 886-901; Palzer, supra note 49, at 730-3 1.58 See Palzer, supra note 49, at 730-31 (quoting Gidon Gottlieb, Relationsim: Legal Theory for a RelationalSociety, 50 U. Ci. L. REv. 567, at 595 (1983), "litigation is largely irrelevant in relational contracts").59 See Gottlieb, supra note 58, at 572-73 ("In sustained and inextricable relations, a principal use of contracts isto provide a basis for renegotiations once a defective performance occurs.").

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IV. SUBSTANTIVE ILLEGALITY CLAIMS MADE BY THE GREEKGOVERNMENT

A. Austerity Measures

The main claim of substantive illegality made by the Greek government, relates tothe austerity measures imposed by the Troika. 60 Namely, the Committee claims that theausterity measures are illegal as they contravene human rights laws as well as the Constitutionof Greece and international treaties to which Greece is a party. 6 These various austeritymeasures, known in international finance loans as conditionalities, are common to "officiallending" type-agreements,62 and describe the requirements Greece must follow in order to beable to use the resources. Each loan agreement includes a provision that subjects subsequentdisbursement of funds on compliance of the budgetary and administrative discipline, set outby various memorandums.63 Only upon satisfactory compliance of measures and receipt ofan official certificate by the 'European Financial Stability Facility ("EFSM"), is Greeceentitled to disbursement.64 In the 2010 agreements for example, Greece agreed to adoptmeasures including budget and pension cuts, subsidy withdraws, tax code changes, changes inthe justice system and public administration of health and social security, and an increase inits main sales tax from twenty-one to twenty-three percent.65 The underlying policy behindimposing austerity measures is, of course, relatively straightforward: creditor control overcapital investments to ensure economic growth. However, the austerity measures have onlyproven to have adversely affected the economy; as by 2014, the economy shrunk by 25%, theminimum pension had fallen below the poverty threshold, wages and salaries had dropped40%, and minimum wage had fallen to its level of the 1970's.66 As the French economistThomas Piketty has noted, "the financial demands made by Europe have crushed the Greekeconomy, led to mass unemployment and a collapse of the banking system, and made the

60 See supra p. 2 and accompanying text.61 See Hellenic Parliament Truth Committee on Public Debt, supra note 26.62 Especially from the IMF and the World Bank. See Jon H. Sylvester, Impracticability, Mutual Mistake and

Related Contractual Bases for Equitably Adjusting the External Debt of Sub-Saharan Africa, 13 Nw. J. Int'l L.

& Bus. 258, 283 (1992).63 See, e.g., Loan Facility Agreement, under Euro Area Loan Facility Act 2010, May 20, 2010,

https://www.oireachtas.ie/documents/bills28/acts/2010/a710.pdf ("The release of Loans subsequent to the firstone shall be conditional upon the Euro Area Member States (except Greece) deciding favourably afterconsultation with the European Central Bank on the basis of the findings of verification by the Commission thatthe implementation of the economic policy of the Borrower accords with the adjustment programme or anyother conditions laid down in the Council decision on the basis of Articles 126(9) and 136 TFEU and theMoU.").64 One such agreement holds: "it shall be an additional condition to any Disbursement under the DBBInstallment that: EFSF has received a certificate of compliance satisfactory to it given by the Legal Advisor tothe State at the Ministry of Finance of the Beneficiary Member State in the form set out in Annex 2 (Certificateof Compliance) to the Amendment Agreement and such certificate of compliance remains correct and accurateas at the Disbursement Date"; see Master Financial Assistance Facility Agreement, supra note 13 at 57.65 See generally Sylvester, supra note 62, at 28, THE IMF, THE WORLD BANK AND THE AFRICAN DEBT CRSIS,

191 (Bade Onimode, ed., 1989); Bob Davis, IMF's Sweeping Demands Signal Shift, WALL ST. J., (May 3,2010).66 See Ozlem, supra note 34.

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external debt crisis far worse [...] The economy now lies broken, with tax receiptsnosediving, output and employment depressed, and businesses starved of capital."67

Consequently, antipathy towards the Troika and the austerity measures is evinced bycitizens who riot the streets of Athens and lament the, "draconian domestic policy," 68

otherwise known as neoliberal reform. " Despite uniform disapproval, are the austeritymeasures illegal?

When making their claim, the Greek government acknowledges not only that theyagreed to implement these measures, but even' that they are partially to blame for theirimplications. They explicitly recognize that a state is primarily responsible for protecting andpromoting the human rights of its citizenry. 70 Notwithstanding these potentially defeatiststatements, they nevertheless conclude that the conditionalities, "supposedly intended torescue Greece," are nevertheless illegal and aimed at rescuing private creditors and forcingneo-liberal reforms.

71

The first specific allegation made by the Greek government is that the austeritymeasures have enabled various violations of human rights, by directly impacting living andworking conditions.7 The government cites a series of findings highlighting the impact thatthe reforms have made on the population, attributing them to the mandated spending andpublic sector cuts and tax increases, ostensibly aimed at reducing the country's fiscal deficit.73

The allegation is that these measures have generally undermined basic human rights, andparticularly economic rights, by increasing unemployment, homelessness, and poverty as wellas reducing access to public services such as health care, social security and education.74 Theimpact of the adjustment measures was said to be more severe for the poor, pensioners,people with disabilities and immigrants.75 Further, the Committee claims that these changes,mistakenly called "reforms," violate key principals of human rights law reflected ininternational treaties such as the International Covenant on Economic, Social and Cultural

67 Thomas Piketty, Angela Merkel Must Act Now for Greece, Germany and the World, THE GUARDIAN (July 7,

2015), http://www.theguardian.com/world/2015/jul/07/angela-merkel-must-act-now-for-greece-germany-and-the-world.68 See Marilena Simiti, Rage and Protest: The Case of the Greek Indignant Movement, Hellenic Observatory:European Institute (Hellenic Observatory Papers on Greece and Southeast Europe), The London School ofEconomics and Political Science (February 2014),http://www.Ise.ac.uk/europeanlnstitute/research/hellenic~bservatory/CMS%/20pdf/Pubiications/GreeSE/GreeS

E-No82.pdf. (In this paper, Professor Simiti describes a mass movement of social resistance to financialassistance from the Troika (known as Aganaktismeni or the Indignant), and the draconian austerity measuresimposed by the government, despite its promises that the country would quickly recover from the crisis.69 In this context, neoliberalism refers to displacement of Keynesian welfare, through liberalization andprivatization of expanded markets. See generally Thomas I. Palley, Keynesianism to Neoliberalism: ShiftingParadigms in Economics, in NEOLIBERALISM: A CRITICAL READER (Alfredo Saad-Filho & Deborah Johnsoneds., 2005); see DAVID HARVEY, A BRIEF HISTORY OF NEOLIBERALISM (2005).70 See Hellenic Parliament Truth Committee on Public Debt, supra note 26, at 45 ("[T]he measures adoptedand implemented by the Greek government under the "bailout" programme have led to a range of human rightsviolations. Since Greece bears primary responsibility for the protection and promotion of human rights for allsubject to its jurisdiction, it can be argued that it bears primary responsibility for such violations.").7' See id. at 34.

72 See id. at 37-43.71 See id. at 6.71 See id. at 37-43.71 See id. at 37-43.

9



THE JOURNAL OF INTERNATIONAL BuSINESS & LAW

Rights ("ICESCR") and the International Covenant on Civil and Political Rights

("ICCPR").6

Secondly, the Committee claims that these measures directly violate the Greek

Constitution by infringing various constitutionally protected rights, including the right to

work, health, education, social security, housing and justice.7 The right to work for example,

was claimed to have been severely undermined in both the private and public sector by

reforms which compressed labor costs, reduced minimum wages, repealed allowances and

benefits, weakened collective bargaining and shrunk the public sector size.78 These labor

market reforms were deemed unconstitutional and the cause of an institutional breakdown,

resulting in massive lay-offs, increased job insecurity and unrestrained unemployment.79

Similar arguments were made regarding the right to health being undermined, which was

attributed to deep reductions to public health expenditure, state hospital operating costs, and

outpatient pharmaceuticals, 8' as well as the right to education, which was ascribed to a

mandated reduction of teachers' pay and the merging and closing of schools."

In contract law, these conditionalities are simply conditions to the contract: terms82

that limit or otherwise qualify promises, and exist because the parties have agreed to them.

Conditions are said to create a duty,83 in this case, that Greece must adhere to the austerity

measures in order to continue to receive funds. The language of the loan agreements clearly

and unambigtiously articulate that the financial support granted to Greece is dependent on

satisfaction of the measures, making these express conditions. 84 Moreover, these can be

further qualified as express conditions precedent, which must be satisfied prior to

performance of the other party,85 as the agreements call for multiple disbursement dates, each

subject to the satisfaction of program measures. 86 Contract law on fulfilling express

conditions is generally straightforward, usually requiring strict adherence.87 However, illegal

conditions, or ones violating public policy, will not be automatically upheld.

76 See Hellenic Parliament Truth Committee on Public Debt, supra note 26, at 41.77 See id. at 37-43 (citing The impact of the crisis onfundamental rights across Member States of the EUCountry Report on Greece,http://www.europarl.europa.eu/RegData/etudes/STUD/2015/510014/IPOLSTU(2015)510014_EN.pdf).78 See id. at 37-43.79 See id. at 37-43.'0 See id. at 37-43.81 See id. at 37-43.82 See Arthur L. Corbin, CORBIN ON CONTRACTS § 31.1 (Joseph M. Perillo et al. eds., Rev. ed. 2015).

83 id.

84 One such provision reads: "the support granted to Greece is made dependent on compliance by Greece with

measures consistent with such decision and laid down in a Memorandum of Economic and Financial Policies,Memorandum of Understanding on Specific Economic Policy Conditionality and Technical Memorandum ofUnderstanding." See Intercreditor and Loan Facility Agreement, supra note 12.85 See Corbin, supra note 82.86 See Hellenic Parliament Truth Committee on Public Debt, supra note 26 (citing European Commission,

2010. Intercreditor and Loan Facility Agreement, under Euro Area Loan Facility Act 2010.http://goo.gl/QeiwUu [Accessed June 12, 2015], Loan Facility Agreement, Annex 6 - Assignment Agreementand Schedule to the Assignment Agreement, and Article 13).87 See 5 Samuel Williston & Walter H.E Jaeger, A TREATISE ON THE LAW OF CONTRACTS §675 (3d ed. 1957)("conditions must be fulfilled exactly or no liability can arise on the promise which such conditions qualify").

10




The doctrine of illegality and public policy recognizes unenforceability ofcontractual provisions if legislation provides that it is unenforceable, or if the enforcementinterest is clearly outweighed by a strong public policy interest.88 Most often, the doctrineapplies to cases where either the formation or performance of the contract is founded on anillegal consideration, such as a tort or a crime. 89 The approach to determining illegality,espoused by the Second Restatement of Contracts, calls for a "balancing," where courtsconsider a number of factors in weighing their decision, such as: the parties' justifiedexpectations and the likely result if enforcement is denied, as well as the strength of the publicpolicy, seriousness of the misconduct and the extent of which it was deliberate.9" Further,because freedom of contract is a public policy of itself,91 in the absence of legislation or astrong public policy, courts are less likely to declare the provision illegal, as this severelyundermines freedom of contract. 92

When a finding of illegality does occur, the contract or provision is considered void,and the court usually leaves the parties exactly where they found them.9' However, there areexceptions to the no restitution remedy,94 and courts rarely apply this rule in its absolutefashion.95 The legal effect of contracts against public policy is said to vary with the characterof the factors that cause them to be against public policy. 96

88 See RESTATEMENT (SECOND) OF CONTRACTS §178 (1981); but see CISG Art.4 (1980) (where UNIDROIT

Principles and Principles of European Commercial Contracts are silent about issues of illegality).89 See C.I.T Corp. v. Breckenridge, 63 Cal.App.2d 198, 200 (1944) (holding that a contract founded upon anunlicensed person to act as a contractor is void, as founded on an illegal consideration); RESTATEMENT(SECOND) OF CONTRACTS §178, 190, 192 (1981) (outlining various unenforceable contracts: whose formationor performance is a tort or a crime, against public policy, promises detrimental to marital relationships, andwhose promise involves a commission of a tort); see also e.g., Sayres v. Decker Auto. Co., 145 N.E. 744 (N.Y.1924) (holding that an agreement to defraud third party is illegal).90 See RESTATEMENT (SECOND) OF CONTRACTS §178(2-3) (1981) (enumerating some factors that the courtshould look at in making this determination; some of which include: the parties' justified expectations,forfeiture that would result if enforcement were denied, the strength of that policy as manifested by legislationor judicial decisions, the likelihood that a refusal to enforce the term will further that policy, the seriousness ofany misconduct involved and the extent to which it was deliberate, and the directness of the connectionbetween that misconduct and the term).This contemporary approach has been contrasted from the rather firm position of Section 512 of the FirstRestatement which held that if formation or performance of a contract is illegal or otherwise opposed to publicpolicy, it is automatically considered an illegal contract, with restitution automatically denied. See IAN AYRES& GREGORY KLASS, STUDIES IN CONTRACT LAW 556; see generally Walter Gelhom, Contracts and PublicPolicy, 35 COLUM. L.REv. 679 (1935).91 See Computrol, Inc., Newtrend, L.P., F.3d 1064, 1070 (8th Cir. 2000) (holding the basis for enforcement oflimitation of liability clause is a strong public policy favoring freedom of contract).92 See ROBERT A. HILLMAN, PRINCIPLES OF CONTRACT LAW 208-12 (2004).93 See RESTATEMENT (SECOND) OF CONTRACTS § 197 (1981), Arthur L. Corbin, CORBIN ON CONTRACTS § 79.1(Joseph M. Perillo et al. eds., Rev. ed. 2015).94 See RESTATEMENT (SECOND) OF CONTRACTS §197 (1981) ("unless denial of restitution would causedisproportionate forfeiture"), RESTATEMENT (SECOND) OF CONTRACTS §§198-199 (1981) (recognizing twomore exceptions: where a party was excusably ignorant or not equally in the wrong, and when a party did notengage in serious misconduct and withdrew from the transactions before the improper purpose had beenachieved).9 See Corbin, supra note 83, § 79.96 d.; Compare Family Financial Servs., Inc. v. Spencer, 677 A.2d 479 (Conn. App. Ct. 1996) (holding acontract unenforceable as a violation of a public policy where the mortgage transaction was found

11




Considering the purported illegal conditions in Greece's loan agreements, a court of

law would have to consider numerous factors and policies when applying the balancing test.

A court will certainly acknowledge the inviolable public policy against unconstitutional

government actions and violations of human rights laws. However, the inquiry will most

likely begin with the contract itself, by questioning the intention of the parties and their

expected result, namely, to provide financial assistance to Greece by requiring measures

intended on restructuring the economy. A court would unquestionably acknowledge the

adverse effects which have resulted by the austerity measures, but would most likely conclude

that the austerity measures do not represent flagrant and intentional illegal conduct per se, but

only by virtue of their implementation have these adverse results ensued. This contrasts

greatly with the preponderance of case law on this subject that mostly deals with clear illegal

conduct specifically prescribed by the contract itself.97 Moreover, a court would acknowledge

the general criticism from the international community of the effectiveness of similar

adjustment programs, as far as they interfere with the debtor countries' sovereignty and

autonomy, but also the fact that this criticism is known to be of a polemic nature, often"motivated by the internal political situations in the debtor countries."''

Another important distinction is the fact that, although the Greek government is

claiming that some of the austerity measures violate international treaties, the majority of the

examples given in the report actually relate to the purported violations of their own

constitution and labor laws.99 Moreover, the generally accepted position under the law of

treaties is that a party to an international agreement cannot invoke its own domestic law to

escape its international obligations.'00

Other factors taken into consideration include what purpose will be served in

denying enforcement, and what the likely result would be. This question is significant in light

of the traditional "no restitution remedy," as a void contract will leave Greece with whatever

funds they have collected so far with no obligation to repay, a far cry from the party's

reasonably expected outcome. 101

Instead, a court of law is more likely to recognize a way to avoid injustice and

respect the party's freedom to contract and intentions; by allowing for alterations or omissions

to the provisions found illegal. Allowing for alterations to the terms is consistent with the

unconscionable) with Naylor v. Conroy, 134 A.2d 785 (N.J. Super. Ct. App. Div. 1957) (where the courtenforced the contract even though it violated a statute that forbid doing business on Sunday).17 See e.g., Meyer v. Hawkinson, 626 N.W.2d 262 (N.D. 2001) (holding a contract void for illegality when thealleged contract was to share the proceeds of a winning Canadian lottery ticket in ajurisdiction where gamblingagreements are forbidden by statute), Homami v. Iranzadi, 211 Cal.App.3d 1104 (Cal.Ct.App. 1989) (holdingthat an oral agreement for the payment of loan interest in violation of the tax code is unenforceable); see alsoHILLMAN, supra note 92, at 77-100.'8 Carsten Thomas Ebenroth, The Changing Legal Framework for Resolving the Debt Crisis: A European's

Perspective, 23 INT'L LAW. 629,632 (1989) (citing Montagon, The IMF and Debt Policy, INT'L BANKING REV.

153, 153 (Europe/Banker's ed. 1986).99 See infra notes 76-81 and accompanying text.

'00 Davidson Sommers et al., Conflict Avoidance in International Loans and Monetary Agreements, 21 LAW &

CONTEMP. PROBS. 463 (1956) (citing 5 G.H HACKWORTH, DIGEST OF INTERNATIONAL LAW 185 (1943); 2 C.CHYDE, INTERNATIONAL LAW 1454 et seq. (2d ed. 1947); I L.F.L. OPPENHEIM, INTERNATIONAL LAW 829 et seq.

(6" ed., Lauterpacht, 1947).

' In fact, given the severity of the Greek debt which involves the second-largest currency in the world, an

automatic write-down of the loans may very well collapse the entire global financial system.

12




reasonable test, which holds that if provisions can be reasonably altered to render themenforceable, then a court can determine what is reasonable considering all available evidenceand the intention of the parties at the time of contracting.'°2 This approach is taken by theRestatement (Second) of Contracts as well as the U.C.C., 103 and aligns with judicialpreferences of deference towards freedom of contract and preserving the essence of theparties bargain. A similar contract theory, divisibility of contracts, recognizes that agreementswith multiple sets of promises and performances can essentially be divided into parts. 104

Under this theory, courts may enforce any divisible portion of the contract, and hold otherportions as unenforceable, and avoid the devastating effect of voiding entire agreements. 105

It may be true that the conditionalities of the loan agreements since 2010 have onlydestabilized the economy even more. In fact, compelling independent research has shown thatabsent austerity measures, the economy in Greece would have only stagnated rather than lose25% of its GDP.' ° However, in light of the strong policies favoring enforcement as well asthe theories of contract interpretation and divisibility, a court would unlikely render the entireloan agreement void as the Committee has implied. At best, a court will render only somespecific provisions unenforceable.

B. Other Contract Provisos

In chapter seven of the Report, the Committee cites various clauses in theagreements themselves that are thought to be abusive or otherwise illegal, the first being awaiver of immunity clause. This would deprive the Greek state of the right to assert sovereignimmunity in the event that arbitration or litigation disputes pursuant to the loan agreementsensue. 107 This claim is grounded in the doctrine of sovereign immunity, which shields foreignsovereigns from the jurisdictional reach of private parties. 108 However, strict doctrinaladherence, known as absolute immunity, has been largely abandoned in the twentiethcentury. 109 Most states have now adopted the so-called restrictive theory of immunity, underwhich foreign sovereigns are no longer automatically immune from suit, and creditors can

102 See Raimonde v. Van Vlerah, 325 N.E.2d 544 (Ohio 1975).103 See RESTATEMENT (SECOND) OF CONTRACTS § 184(2) (1981), U.C.C. § 2-302 (1977).104 See 6 Williston on Contracts § 860 (3d ed. 1962); RESTATEMENT (SECOND) OF CONTRACTS § 240 (1981).10' RESTATEMENT (SECOND) OF CONTRACTS § 240 cmt. e (1981) ("[T]he court's decision will usually depend

on considerations of fairness."); see e.g., Management Serv. Corp. v. Development Assic., 617 P.2d 406 (Ut1940)."' See Ozlem, supra note 34.107 The exact wording of this provision is as follows: "The Beneficiary Member State, HFSF and the Bank ofGreece hereby irrevocably and unconditionally waive all immunity to which each of them is or may becomeentitled, in respect of itself or its assets, from legal proceedings in relation to this Agreement and each of itsAnnexes and Schedules (including the Annexes to such Schedules) and each Pre-Funding Agreement,including, without limitation, immunity from suit, judgment or other order, from attachment, arrest orinjunction prior to judgment, and from execution and enforcement against its assets to the extent not prohibitedby mandatory law." See Intercreditor and Loan Facility Agreement, supra note 12.108 See Leo J. Bouchez, The Nature and Scope of State Immunity from Jurisdiction and Execution, 10 NETH.Y.B. INT'L L. 3, 4 (1979).'0' See W. Mark C. Weidemaier, Sovereign Immunity and Sovereign Debt, 2014 U. ILL. L. REV. 67 (2014).

13




overcome sovereign immunity under various exceptions. 110 In the U.S for example, the

Foreign Sovereign Immunities Act of 1976 (FSIA) provides the commercial activity

exception, which exposes a foreign sovereign to suit when it engages in commercial activities,

as opposed to public activities, recognizing the momentous right of private party litigants to

sue foreign sovereigns to enforce judgments. " Further, this exception has also been

recognized by both the International Court of Justice and by the United States Supreme Court

in the context of international loan and bondholder agreements in a number of cases.112 Even

so, international loan creditors often insist that sovereign borrowers waive their immunity just

for good measure, as consistent with efforts to safeguard potential claims against the

sovereign. 11 As it happens, such provisions are considered common to international loan

agreements. 114 The concern amongst legal scholars is never the existence of these clauses, but

rather their practical application and the jurisdictional questions that they pose;1 5 however,

this is not at issue here. As such, the claim that the waiver of immunity clause by its own is

illegal is extremely weak.The second clause the Committee cites as illegal is a severability clause, which

states that in the event that a provision is judicially noted as illegal, void, or unenforceable,

the remaining provisions of the agreement are to remain in force. 116 This rather innocuous

clause is frequently employed in contemporary contracting, as some consider it a boilerplate

provision, and most courts do not hesitate to enforce them.117 In fact, the absence of such

clause tends to indicate that the underlying contract is not severable." The underlying theory

is that although a particular provision may be deemed illegal, it shall not undermine the entire

contract. 19 This is consistent with the judicial tendency that generally recognizes the

ll See Julian G. Ku, Don't Cry for Sovereign Debtors: Why Argentina's Defeat in US Courts Does Not Justify

a Sovereign Debt Treaty, 36 U.PA.J. INT'L L. 433,443 (2014).

1l" See MARK W. JANIS, AN INTRODUCTION TO INTERNATIONAL LAW 349 (2003).112 See e.g., Republic of Argentina v. Weltover, Inc., 504 U.S 607 (1992) (where the United States Supreme

Court decided that the commercial activities exception applied to in the context of bondholder agreements,where private parties could sue Argentina for breach of performance for government bond payouts),Jurisdictional Immunities of the State (Ger. v. It.: Greece intervening), Judgment, 2012 I.C.J. 57, 25 (Feb. 3).

113 See W. Mark C. Weidemaier, Contracting for State Intervention: The Origins of Sovereign

Debt Arbitration, 73 LAw & CONTEMP. PROBS. 335, 342 (2010).114 Id.

115 See Ku, supra note 110, at 443-445 (where Professor Julian G. Ku asserts that, although a waiver of

immunity subjects the sovereign to monetary judgments, United States law still hinders the creditors ability to

execute these judgments against a sovereign's assets, and by simply moving attachable assets out of thejurisdiction before execution, the sovereign is essentially litigation-proof).116 The exact wording of the provision is as follows: "If any one or more of the provisions contained in this

agreement should be or become fully or in part invalid, illegal or unenforceable in any respect under anyapplicable law, the validity, legality and enforceability of the remaining provisions contained in this Agreement

shall not be affected or impaired thereby. Provisions which are fully or in part invalid, illegal or unenforceableshall be interpreted and thus implemented according to the spirit and purpose of this Agreement." SeeIntercreditor and Loan Facility Agreement, supra note 12.

".7 See i.e., Diverse Elements, Inc. v. Ecommerce, Inc., 5 F. Supp. 3d 1378 (S.D. Fla. 2014) (holding aseverability clause valid under Florida law); Effingham County v. Roach, 329 Ga. App. 805, 764 S.E.2d 600(2014).11 See generally 14 Williston on Contracts § 45:6 (3d ed. 1962) (citing Eaton v. CMH Homes, Inc., 461S.W.3d 426 (Mo. 2015).119 See John Copeland Nagle, Severability, 72 N.C. L. REv. 203 (1993).

14




intentions of the parties and their respective "meeting of the mind."'120 Courts that decide onthe issue of severability do so irrespective of the existence or exact wording of theseverability clause, but rather in light of the nature of the illegal provision sought to besevered, and its relation the contract as a whole. 121 Overall, courts have predominantlyfavored severability in their determination, as long as it is consistent with the intent of theparties.122 The claim made here is that the severability clause is itself illegal, however, thisindependent illegality claim may be unprecedented and runs afoul of the nature of severabilityclause jurisprudence. The severability clause independently is likely to be viewed as ratherinnocuous, and neither burdensome nor unfair.

The third clause cited by the Committee as illegal is a waiver of defense clause. Itstates that, "provisions of [this] agreement have to be implemented even if they were foundillegal, and that Greece hereby irrevocably and unconditionally waives all defenses."123 Acourt would not need to even consider the first part of this provision as illegal contracts areautomatically void by operation of law. 124 However, a court could very well consider thiswaiver of defense clause as unfair, as such clauses are usually only employed within thecontext of assignments and delegations of financial agreements. In those cases, a party wouldagree "not to assert against the assignee any defenses it might have against the assignor."'125

Such agreements are given substantial deference by courts and are usually upheld,recognizing not only the parties "broad latitude within which to fashion their own remedies,"but also the commercial necessity that a prospective third-party assignee is guaranteedmeaningful security.126 Further, the UCC protects the use of waiver of defense clauses forfinancing leases for the sale of goods as well as for future services, but only by an assignee ofa funding source of the payee. 121 Otherwise, courts have held that a waiver of defense clausein a two-party transaction is unwarranted and out of place as the contracting parties are said tobe protected by their own covenants, representations and warranties, and the obligation to payfrom the debtor should not continue where there is an egregious breach by the creditor.121

Consequently, the provision cited by the report, as written, is not referring to the assignee' ofthe contracting party creditors but to themselves, and is arguably an illegal proviso, either asonerously one-sided (unconscionable) or as transgressing the duty of good faith and fairdealing in contracting. 129

However, as previously asserted, courts favor the severability presumption, andhave held that when the illegal portion can be severed from the rest of the contract, the

120 See RESTATEMENT (SECOND) OF CONTRACTS § 201(1) (1981).121 id.122 See JANIS, supra note 111.

123 See Hellenic Parliament Truth Committee on Public Debt, supra note 26.124 See supra accompanying notes 85-93.125 See Citicorp of North America Inc. v. Lifestyle Communications Corp., 836 F.Supp. 644, 655 (S.D. Iowa1993).126 Barry A. Graymor, Are Hell or High Water Clauses and Waiver of Defense Clauses Enforceable?, BusinessLaw News (The State Bar of California) (Winter 1999) (citing Colorado Interstate Corp. v. CITGroup/Equipment Financing, Inc., 993 F.2d 743 (10th Cir. 1991)).127 See generally UCC §§ 2-407, 2-508, 9-403.128 2 Com. Asset-Based Fin. § 14:46.129 See infra notes 189-192 and accompanying text.

15




remaining contract is still enforceable. 130 As such, a court will, at best, simply strike this

provision.

V. PROCEDURAL ILLEGALITY CLAIMS

The second cluster of illegality claims considers various aspects that stem from the

bargaining process of the parties, which are said to be illegal or violate public policy. The

Committee cites three types of procedural illegality: the choice of law governing future

disputes; various debt-mechanism procedures embedded within the contracts, which allow

creditors to sell their right to collect on the loans; and the failure of the creditors to comply

with certain enactment procedures prior to contracting.

A. Choice of Law Provision

The first of the Committee's procedural illegality claims, calls into question the

illegality of the choice of law provision. That is, they claim that English law as the governing

law for future litigation or arbitration, illegally facilitates the circumvention of the Greek

Constitution and international human rights. 131 In making this claim, the Committee neither

refers to any specific provision of the Greek Constitution nor cites any examples in which

English law would violate the Constitution or infringe on human rights.132 In fact, the only

reason mentioned as to why their creditors would chose English law, is that it would favor a

strict interpretation of the laws of contract, which is more favorable to them. 133

Of course, the very nature of international contracts heightens the risk of a conflict

between different laws and court systems within this area, as it is possible that the laws of

several jurisdictions could be involved with multiple, courts exercising jurisdiction over the

very same dispute. The Restatement (Second) on Conflict of Laws, holds that the essential

validity of a choice of law agreement is left entirely to the choice of the parties, as it is after

all a part of the quid-pro-quo, considering it is governed by a legal system which the

agreement is closely connected. 134 Limitations arise only when the agreement has no

substantial relationship with the state of choice, or is not otherwise deemed reasonable.131

Even within the context of multi-state contracts, the restatement recognizes that parties may

chose a law that is unconnected with the agreement per se, as it may be necessary to have a

stable legal system understood by all the parties. 136

130 See supra notes 88-96 and accompanying text.131 See Hellenic Parliament Truth Committee on Public Debt, supra note 26, at 45.

132 See id. ("By choosing English law as the governing law for those agreements, the implicit objective of the

creditors in their choice of law clause was to bypass the Greek Constitution and Greece's international humanrights obligations. And thus, to the extent that English law does not incorporate or conflicts with, Greece'shuman rights treaty and customary obligations, it is invalid and merits no obligation to be honoured.").133 See id.134 See RESTATEMENT (SECOND), CONFLICT OF LAWS § 332 (Tent. Draft No. 6, 1960) (permitting the parties tochoose the governing law within certain limitations, among which is that that the agreement has a substantialrelationship with the law of choice or not otherwise unreasonable).135 id.136 Id., comment f, pp.21-22.

16




Regarding English contract law generally, it has been noted that the Internationalfinancial community has a history of the English law preference.'37 This is perhaps due toboth the more pragmatic and commercial expressionist approach of English law, as well as forits well-defined case law support."13 Further, English contract law is also preferred because ofthe country's conceptual sophistication within its law, which is capable of accommodatingdisputes and transactions within its framework. 139 In light of the English law preference andconsidering the nature of the provision being in the original agreed-upon transaction, it is veryunlikely to be held as illegal.

B. Debt-Mechanism Procedures

The second procedural illegality claim involve the so-called "debt mechanisms"provisions that allow creditors to transfer borrowed funds to private financial institutions.This would essentially allow transferring official debts, those owed to international financialinstitutions such as the Troika, 140 to commercial debts, those owed to commercial banks orother private entities. 14' This practice, known in finance as loan asset sales, enables afinancial institution to transfer an asset inter-bank, analogous to the secondary market tradingof bonds or stocks. 142 The contract law parallel is known as an assignment of rights, whichinvolves a contracting party assigning their right of performance to a third party; that is, onenot in privity with the initial contractors.141

The claim by the Committee is that these encompass illegal assignment of rights thattransform public debt into private debt and allow for the eventual transformation of Greece'spublic state assets to private bonds. 144 To this, the Committee enumerates the exact debtmechanisms found within the loan agreements. The first of these, under the 2010agreements, 145 provides for the transformation of debt securities into bilateral loans. 146 Thisessentially converts the debt owed to the IMF and ECB to private entities or states. TheCommittee claims that this mechanism, "hidden in an Annex," allows a transfer of contractual

137 See Keith A. Palzer, Relational Contract Theory and Sovereign Debt, 8 Nw. J. INT'L L. & Bus. 727, n.68

(1988) ("Almost all sovereign loan agreements have stipulated adjudication in New York or Longon, with NewYork or English law controlling. This is due to the growing sophistication and specialization of those financialcenters as well as the unacceptability of a developing country forum to creditor banks lending to developingcountry sovereigns."); see generally RAVi C. TENNEKOON, THE LAW & REGULATION OF INTERNATIONALFINANCE (1991).138 See RAvi C. TENNEKOON, THE LAW & REGULATION OF INTERNATIONAL FINANCE 23 (1991).139 id.140 See generally Sylvester, supra note 62 at 283.141 id.142 See TENNEKOON, supra note 138, at 103.143 See IAN AYRES & GREGORY KLASS, STUDIES IN CONTRACT LAW 1077 (8th ed. 2012); see also In re Stralem303 A.D.2d 120 (N.Y.S.2d 2003).144 See Hellenic Parliament Truth Committee on Public Debt, supra note 26, at 29-32.145 Known as the "Loan Facility Agreement" and "Intercreditor Agreement."146 See Hellenic Parliament Truth Committee on Public Debt, supra note 26, at 29 (citing EuropeanCommission, 2010. Intercreditor and Loan Facility Agreement, under Euro Area Loan Facility Act 2010.http://goo.gl/QeiwUu (Accessed June 12, 2015).

17




rights from bondholders to any new party through simply completing a form.' 7 The second

debt mechanism mentioned, found within the 2012 agreements, 148 allows for re-capitalization

of Greek banks, a process where the bank's bonds and other securities are adjusted or

restructured,149 and for recycling of debt through private sector involvement, "PSI"'50 and

"the debt buy-back operation", allowing creditors to buy back even existing debt

instruments.'51 The last debt mechanism cited, known in finance as "securitization", involves

the pooling and repackaging of loans into securities, which are then sold to investors. 152 The

Committee asserts that securitization, as well as PSI, allow for the acceleration of the

privatization process of public debt, which includes state assets such as state owned

companies, land, buildings and natural gas storage rights, which in turn, would transform

valuable public assets into means for debt repayments, a devastating result for Greece. 153

They also claim, that these are done with malice intentions - a scam on the part of private

creditors to exploit raising capital. In reality, these mechanisms .simply allow for an

assignment of contractual rights, and are considered common practice within the international

finance community, even for secured transactions. 15 4

Contrary to the common law rule against assignments, the development of contract

law in the nineteenth century has recognized the importance of alienability of intangibles such

as securities, stocks, funds and other assets, as essential to commerce and trade. 155 The

assignment of the right to receive an amount in the future, known as an account receivable, is

one of these recognized types. Ordinarily, an assignment of this nature would be subject to

Article 9 of the UCC, because of its frequent use as a financial device. 156 However, an

exclusion from Article 9 exists when the assignment is for the sole purpose of collection, and

American jurisdictions usually refer to common law rules as well as respective statutory

enactments. 157 Under general contract doctrine, an assignment of contractual rights is

presumptively valid unless the assignment would materially change the duty of the other

party, or materially increases the burden or risk imposed. 5s Accounts receivables usually

14 See Hellenic Parliament Truth Committee on Public Debt, supra note 26, at 29 (citing Loan FacilityAgreement, Annex 6 - Assignment Agreement and Schedule to the Assignment Agreement, and Article 13).14' Known as the Master Financial Assistance Facility Agreement, "MFAFA".14' BLACK'S LAW DICTIONARY 1267 (6"' ed. 1990).

... A term used in international finance for the financing of economic crisis, which enables public sectorparticipation to essentially finance the crisis. See William R. Cline, "Private Sector Involvement" in FinancialCrisis Resolution: Definition, Measurement, and Implementation 3 (Ctr. for Global Dev., Working PaperNo. 18, 2012).151 See Hellenic Parliament Truth Committee on Public Debt, supra note 26, at 30.152 Alfred J. Puchala, Securitizing Third World Debt, 1989 COLUM. Bus. L. REV. 137, 138 (1989).153 See Hellenic Parliament Truth Committee on Public Debt, supra note 26, at 30.154 See JOSEPH M. PERILLO, CONTRACTS 640 (7th ed. 2014).155 Id.156 Id. at 643.157 id.

' See U.C.C. § 2-210(2) (1977), RESTATEMENT (SECOND) OF CONTRACTS § 317(2)(a) (1981), Crane Ice

Cream Co. v. Terminal Freezing & Heating Co., 128 A. 280 (Md. Super. Ct. 1925) (holding that an assignmentof a contract right materially changed the obligor's duty when the quantity contracted for was based on pastperformance of the parties: "[I]t is clear that the rights and duties of the contract under consideration were of sopersonal a character that the rights that [one party's rights] cannot be assigned [... J without defeating theintention of the parties to the original contract").

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pose slight assignment problems, as one can imagine that simply changing the intendedbeneficiary neither changes the duty nor the risk of the indebted party. 159 Even in the case ofsecured transactions, a creditor-party's grant in its accounts receivable to an assignee the solepurpose of collection, only provides security for repayment that the original creditor hadpursuant to the parties' agreement. 160 These assignments are intended as an outright transferof an account receivable and have been distinguished within the law of secured transactionsfrom those made as collateral security for a debt, which create the security interest. 161 Evenmore problematic assignments exist when the party has not yet earned payment byperformance under the contract and tries to convert this into present cash, however these aretreated on an ad hoc basis and are not considered here. 162 Only illegal assignments, thoseoutlawed by statute or a strong public policy are considered automatically prohibited. 163

However, these are usually limited to assignment of structured settlements, the right topayment under a public contract, or assignment of rights in life insurance policies. 164

The existence of an assignment clause in the contract is often given substantialdeference by courts, simply reluctant to interfere with the parties' freedom of contract. 165

Even more deference is given to free assignment clauses, which place no limitation onassignment. These have even been honored in cases where the rights would not otherwise becapable of assignment, as courts have acknowledged that as part of the bargained forexchange, the parties have contracted for all possible assignments, and thus submitted to anythat may ensue. 166

In the case of Greece's financial loan agreements, the lenders have alreadyperformed, and since the assigned right in questions is of an account receivable for collectionpurposes only, UCC Article 9 does not apply. 167 We must simply ask under contract law,whether the assignment materially changes the duty or burden of Greece to the potentialassignees. The Committee has not offered a strong reason that changing the intendedbeneficiary of the loan payments would alter the duty or imperil Greece in any way to makepayment. They indirectly claim that the transfer of public to private debt constitutes a materialburden, as State assets are potentially in the hands of private parties. However, this argumentlacks merit, as those pubic security interests were pre-existing parts of the originalagreements, and were not created by the assignment provision. As such, state assets werealready within the potential reach of creditors and cannot be considered a material burden, or

9 See IAN AYRES & GREGORY KLASS, STUDIES IN CONTRACT LAW 1079 (8th ed. 2012).160 See generally U.C.C. § 9-109(a)(1) (1977), U.C.C. § 9-109(d)(4) (1977).161 See PERILLO, supra note 154 (citing International Harvester v. Peoples Bank & Trust, 402 So.2d 856 (Miss.1981) and Aquaplex v. Rancho La Valencia, 297 S.W.3d 768 (Tex. 2009)).162 Id.163 See PERILLO, supra note 154, at 651.164 See id at 651.165 See generally John Copeland Nagle, Severability, 72 N.C. L. REV. 203 (1993); Joseph M. Perillo,CONTRACTS 652 (7th ed. 2014); Richard A. Lord, WILLISTON ON CONTRACTS § 74, at 40 (4th ed. 1990) (citingD.L Stem Agency v. Mutual Benefit Health & Accident Ass'n, 43 F. Supp. 167 (upholding a provision in acontract expressly permitting an assignment)).166 See Ducan Services v. ExxonMobil, 722 F.Supp.2d 640, 648 (D.Md. 2010) ("[T]he court believes that theclear agreement of the parties to make the contract freely assignable controls, and no inquiry into the potentialincrease in burdens prompted by the assignment is necessary."); see also Barnes v. Gulf Oil Corp., 795 F.2d358 (4h Cir. 1986).161 See U.C.C. §§ 9-109(a)(1), 9-109(d)(4) (1977).

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any burden for that matter. Had the secured transaction been solely a part of the assignmentprovision, would there be a better argument.

The argument that the privatization process is a scam for member-state lenders toraise capital through sales is also flawed. In fact, the main reasons why banks sell a loan's

assets has been found to be regulatory; to reduce of high-risk weighting assets, in order tomaintain capital dependency in the market, as well as to improve profitability ratios. 168 In

addition, the existence of an assignment clause as agreed-upon in the original contracts,severely undermines Greece's argument even more. Further, similar debt mechanisms are

frequently used in international loans in order to finance debt of countries on the brink of

insolvency. Some examples include private sector involvement used to finance Thailand'sdebt in 1997,169 market-based security swaps employed for Brazil, Turkey, and Argentina,70

and securitization mechanisms for Mexico. 171 Not only are these mechanisms commonpractice in the field, but they have been noted by scholars to be components of successfulcrisis finance strategies. 1

72

Securitization, for example, has actually been known to be more beneficial for theindebted country then the creditors.173 It allows the debtor nation to benefit from the transfer

of loans to investors who have the resources to allow them to reschedule their repaymentstructure and work through their short-term problems, as opposed to the original lenders,which lack the ability to do so. 4 In addition to preventing a hiatus in interest payments,securitization allows the debtor nation to purchase their own securitized debt, saving themarket discount that would otherwise escape to the private sector.175 This serves as a hugeadvantage for debtors who are otherwise prohibited from directly repurchasing under the loanagreements. 176 In fact, Ecuador took advantage of this in 2008, when it part-defaulted on 70%

of its debt that it declared "illegitimate", then bought back bonds at a third of their valueeliminating billions of dollars off its debt."'

Whether or not the securitization proposal truly addresses the needs and problems ofdebtor countries is questionable, 17 ' as there is very good argument that this is nothing morethan a "Cat in the Hat" solution of simply spreading the problem around to make it less

168 See PERILLO, supra note 154, at 103.169 See generally Ramesh C. Garg, The Case for Debt-Forgivenessfor Latin America and the Caribbean

Countries, 28 INTERECONOMICS 30 (1993).170 Id.

171 id.

72 See Alfred J. Puchala, Securitizing Third World Debt, 1989 COLUM. Bus. L. REv. 137, 138 (1989); but see

David W. Leebron, First Things First: A Comment on Securitizing Third World Debt, 1989 Colum. Bus. L.

Rev. 173 (1989).173 See Alfred J. Puchala, Securitizing Third World Debt, 1989 COLUM. Bus. L. REv. 137, (1989).174 See id. at 139 ("In turn, countries owing the debt included in these securities should benefit from thetransfer of some loans from, among others, a financially troubled group of lenders, to investors potentiallybetter able to allow debtors to work through short-term problems.").175 id.176 See David W. Leebron, First Things First: A Comment on Securitizing Third World Debt, 1989 Colum.

Bus. L. Rev. 173 (1989).177 See Arghyrou & Tsoukalas, supra note 19.178 See Leebron, supra note 176, at 188 ("[S]ecuritization is emphatically not a solution to the countries'

problems, and thus not really an answer to the problem at all").

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noticeable. 17 9 However, when viewed as a matter of contract assignment these mechanisms donot contravene the law, and if Greece were to assert this claim, a court would unlikely findthem as illegal.

C. Enactment Procedure Compliance

In addition, the Committee claims that certain procedures, required before theenactment of such loan agreements, were not fulfilled due to the bad faith of the creditors,which also render the contract void. The procedures cited are known collectively as humanrights impact assessments ("HIRA"), and are intended to examine the potential impact of theadjustment program's legislative measures on persons likely to be affected, prior to theirimplementation. 180 The claim that HIRA's are required by international law is well-supportedby a variety of sources, including; decisions by the Court of Justice of the European Union,treaties which require them, international guidelines, as well as various other internationalinstruments which generally protect human rights."' Greece claims that since no attemptswere made to assess the impacts of the macroeconomic adjustment measures in neither 2010nor 2012, the creditors acted in bad faith and with malice intent.182 Moreover, the Committeestates that subsequent findings by both the Committee on Economic and Monetary Affairs,and by private individuals, have deemed these actions as, "lacking in transparency anddemocratic oversight," due to the margirialization of the European Parliament, at least until2013.183

The "duty of good faith" has doctrinally developed in contract law based onequitable principals of fair dealing, and is recognized and codified in the Restatement ofContracts,18 4 the UCC,' s and in UNIDROIT. 186 This duty, although seemingly difficult todefine precisely,8 7 has been held to mean more than simply honesty in fact, and excludesbehavior that violates community standards of decency, fairness and reasonableness. 188Consequently, the issue regarding the parties' duty of good-faith under the contract is

179 See id. at 188.180 See Hellenic Parliament Truth Committee on Public Debt, supra note 26, at 45-49.181 See id. at 45-49 (including the International Covenant on Economic, Social and Cultural Rights("ICEDCR"), the Convention on the Rights of the Child ("CRC"), the European Social Charter ("ESC"), theCharter of Fundamental Rights ("CFR"), the Treaty of the European Union ("TEU"), and the Treaty on theFunctioning of the European Union ("TFEU")).182 See id. at 45-49.183 See Hellenic Parliament Truth Committee on Public Debt, supra note 26, at 48 (citing Pliakos A.,Memoranda of Understanding and the Requirements of the EU Values [sic]).184 See RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981).8' See U.C.C. § 1-203 (1977).

'86 PICC Art. 1.7(1) (2004).In fact, only in English Contract law do they refuse to recognize a general duty of good faith W.H. Knight, Jr.,Loan Participation Agreements: Catching up with Contract Law, 1987 COLuM. Bus. L. REv. 587 (1987).187 See JAY WINSTON & ARTHUR WINSTON, COMPLETE GUIDE TO CREDITOR AND COLLECTION LAW §3.07 [E](2012-2013 ed. 2013), HILLMAN, supra note 92 at 205-08.188 See RESTATEMENT (SECOND) OF CONTRACTS §205, cmt. a. (1981) ("Good faith performance orenforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with thejustified expectations of the other party; it excludes a variety of types of conduct characterized as "bad faith"because they violate community standards of decency, fairness or reasonableness.").

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generally one of fact, and which varies with the context."8 9 In analyzing this fact, courts are

primarily concerned with parties that will be deprived of the benefit of its bargain, which

usually does not extend beyond the terms of their agreements. In fact, the majority of courts

have held that the duty of good faith and fair dealing does not create any additional rights or

obligations, but only confers obligations based on the promises of the original contract. 190 The

New York Court of Appeals has held for example, that no obligation of good faith can be

implied "which will be inconsistent With the other terms of the contractual relationship."191 In

this holding, the court indeed acknowledged the implied duty of good faith in every contract,

but highlighted that the terms of the contract are what govern the rights and obligations of the

parties. 9' Similar holdings have also suggested that in order to bring a claim for breach of the

duty of good faith, the plaintiff must establish breach of an express provision of the contract,

recognizing that the duty of good faith cannot stand as an independent cause of action. 193

In the case of Greece, they are claiming that failure to assess the potential impacts of

its austerity measures, an obligation recognized in international law, constitutes a breach of

the duty of good faith on the contract, and renders it void. However, this claim lacks

substantial merit, as it mistakenly considers an international preference, as automatically

binding on the parties as a matter of contract law.

Numerous cases have held that the duty of good faith may not be imposed

to override express terms in the contract.194 One notable example in the

context of a demand note is a Missouri Court of Appeals case in which the

court refused to hold that the duty of good faith limits the rights of a holder

of a demand note to call the obligation when the lender failed to disclose

that the bank was concerned about the loan, and believed it was the largest

risk exposure in the bank. 195 The court noted its reluctance in altering the

terms of the loan agreement, even with the existence of evidence

supporting a potentially nefarious motive:

"The additional term would be that the note is not payable at any time

demand is made but only when demand is made if such demand is made in

good faith. Thus [the duty of good faith] has no application because it does

189 See JAY WINSTON & ARTHUR WINSTON, COMPLETE GUIDE TO CREDITOR AND COLLECTION LAW §3.07 [E](2012-2013 ed. 2013) ("The courts generally examine the fact situation to determine whether the party beingaccused acted in such an abominable manner lacking any of the virtues of good faith and fair dealing.").190 Id. ("The court will not entertain the birth of a new obligation or new duty.").191 Murphy v. Am. Home Prod. Corp., 58 N.Y.2d 293 (N.Y 1989) (considering the duty of good faith when

questioning the legality of a discharge pursuant to an at-will employment contract).192 Id. at 304 ("In such instances the implied obligation is in aid and furtherance of other terms of the

agreement of the parties.").

19' See, e.g., Gillman v. Chase Manhattan Bank, N.A., 73 N.Y.2d (N.Y 1998) (holding that the duty of good

faith does not require a bank to provide advance notice to its customer of its intent to segregate and seize

collateral pursuant to a security agreement), Eaglehead Corp. v. Cambridge Capital Group, Inc., 170 F.Supp. 2d522 (D. Md. 2001).

194 See, e.g., Flagship Nat'l Bank v. Gray Distribution Systems, Inc., 485 So. 2d 1336 (Fla. Dist. Ct. App.

1986) (holding that a bank does not violate its duty of good faith when failing to extend additional credit even

after having done so in the past, when that was exactly what the contract called for).

'95 Centerre Bank of Kansas City, N.A., v. Distributors, Inc., 705 S.W.2d 42 (Mo. App. 1985).

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not relate to the performance or enforcement of any right under thedemand note but in fact would add an additional term which the parties didnot agree to. 196,,

Similarly, the allegation of bad faith made in the Report, would impose an.additional obligation on Greece's creditors, not bargained for by the parties. It follows that acourt of law would acknowledge that a material part of the agreed-upon exchange, Greecerepaying the loan, will not be undermined in light of an un-bargained for internationalpreference, albeit potentially sinister.

This allegation of bad faith, is perhaps part of a broader underlying theme of thereport; that the creditors interests are not really to implement macro-economic growth, but toserve the interests of the financial world. This, although alters the duty of good faithargument, questions intentions that are outside the reach of usual contract law; as not existingat the time of contracting. Courts have also held that absent a real defense, when one partysimply makes a bad deal and is seeking revocation, such detriment will not be considered,"[T]he general rule of freedom of contract includes the freedom to make a bad bargain." 197

VI. A DIFFERENT TAKE ON ILLEGALITY

When considering the allegations made by the report and the rhetoric of the writers,one can easily be just as utterly confused as vehemently persuaded. In fact, this may be thesole purpose of the publication. However, amid the florid legalese and implicit politicalattacks, the report asserts a number of substantive and procedural illegality claims relating tothe loan agreements - none of which are likely to pass muster in court to render the Greekgovernment with a revocation right. The power to rescind is a potent power, which hasfostered heightened judicial discretion, as courts recognize that the principal of freedom tocontract is severely undermined when the government impinges on private agreements.However, there is still a way to give voice to Greece under contract law, even when failing tomeet the revocation burden. This, I argue, is to be found within the doctrinal development ofthe law of contracts and relevant remedies.

As noted, the unilateral revocation right that is sought by Greece has been a remedytraditionally associated with classical contract theories, suitable for discrete, one-timecontracts with shorter durations and expectations. However, the context of long-terminternational loans more appropriately calls for relational contract theory and its applicableremedies to govern. In fact, relational contract theory has actually been said to specificallyapply to long-term sovereign loan agreements, as it recognizes the complexities consideringthe number of parties usually involved, and each party's respective obligations and conflictingpolitical, social and economic rights. 19 That is, the sheer volume and long maturity of suchloans highlights the importance and applicability of relational contract theory in this context.In fact, conventional litigation over sovereign loan agreements has even been deemed

16 Id. at 48.

197 See Sanger v. Yellow Cab Co., Inc., 486 S.W.2d 477, 482 (Mo. 1972), Higgins v. American Car Co., 324

Mo. 189, 193 (Mo. 1929); see generally RESTATEMENT (SECOND) OF CONTRACTS §163, ilus.3 (1981).'9' See Palzer, supra note 46, at 735 (defining sovereign loans as "one of the grandest relational exchanges inthe contract universe").

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THE JOURNAL OF INTERNATIONAL BOSINESS & LAW

problematic,199 as courts are simply unable to rid the "distortion of conventional thinking.' 2 °

As a result, "delegitmization" of the formal contract and its interpretation is usually warrantedin order to avoid arcane legal rules and ineffective remedies.

Thus, relational contract theory would recognize the obvious objective of long-termsovereign loan agreements: money for present-use for repayment over time. As such, it wouldallow for "efficient breach" and for parties to avail themselves of more effective remedies,such as the use of debt restructuring or rescheduling that allows for parties to renegotiate theterms of the original agreement, either by spreading out the principal payment dates to alonger period, reducing interest rates, or simply altering or removing conditions.20'

Simply stated, the biggest problem with the allegations made by the Greekgovernment lies not within the merits of the claims per se, but rather, the requested relief.Even Greece's strongest arguments, the ineffectiveness of the austerity measures and thewaiver of defense clause, are not strong enough to render the entire agreements void. It is my

contention, however, that these arguments can and should be used in a more effective way; aconvincing argument that seeks serious debt restructuring and renegotiation of the terms. This

202approach, although far from being properly considered a contemporary solution2 , is howeverthe norm in sovereign debt crisis.20 3 In fact, scholars have noted that the nature of sovereigndebt places inherent limitations on the legal enforcement and applicability of the underlyingcontracts,20

4 as restructuring and other non-legal mechanisms such as reputational concernsand political pressures seem to "govern" instead.20 5

As such, I propose that the Truth Committee on public debt undertakes a re-draftingof the report in order to elucidate the meritorious claims, place them within the prism of therelational contract, and omit weak claims and any doctrinal references that gives rise toclassical theory scrutiny. This would not only restore morale, but political sovereignty aswell, and put the country in the best possible leveraging position to sit with creditors andrenegotiate the terms in a way more favorable to the Greek people.

199 See Palzer, supra note 46, at 731 (citing ALCOA v. Essex Group Inc., 499 F.Supp. 53 (W.D. Pa. 1980)(where a court reformed a 20-year aluminum conversion contract based on mutual mistake of the parties inbasing the price of services and aluminum on an index which did not include fuel prices, which skyrocketed in1973) and Victor P. Goldberg, Price Adjustment In Long-Term Contracts, 1985 Wis. L. REV. 527, 534-40

(criticizing the ALCOA decision because of its failure to consider opportunity costs in determinations and thecourt's seeming ignorance of the purpose of long-term contracts).200 See Palzer, supra note 46, at 731.

201 See Palzer, supra note 46, at 740.202 As sovereign debt restructurings have occurred as far back as the sixteenth century. See generally AdamBrenneman, Note, Gone Broke: Sovereign Debt, Personal Bankruptcy, and a Comprehensive Contractual

Solution, 154 U.PA. L. REv. 649 (2006) (citing Ross P. Buckley, Emerging Markets Debt: An Analysis of theSecondary Market 6 (1999) (discussing the Spanish debt crisis of 1557, 1575, 1596, 1602, 1627, and 1647)).203 See Carsten Thomas Ebenroth, The Changing Legal Framework for Resolving the Debt Crisis: A

European's Perspective, 23 INT'L LAW. 629, 632 (1989) ("Sooner or later most indebted countries decide torenegotiate their debt.").204 See Federico Sturzenegger & Jeromin Zettelmeyer, DEBT DEFAULTS AND LESSONS FROM A DECADE OF

CRISES 55-63 (2006).

203 See Eduardo Borensztein & Ugo Panizza, The Costs of Sovereign Default, 56 IMF Staff Papers 683, 690-97

(IMF Working Paper WP/08/238, Oct. 2008), https://www.imf.org/extemal/pubs/ft/wp/2008/wp08238.pdf.

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VII. CONCLUSION

As we have seen, the idea of unenforceability in contract law has provencontroversial for a number of reasons grounded in sound public policy. Similarly, the maximpacta sunt servanda ("agreements are to be observed"), has long prevailed in the context ofcontractual agreements, and has been historically noted for its significance. However, theidiosyncratic nature of long-term loan agreements enables us, even through the otherwiseshallow lenses of contract law, to take a deeper look for alternative solutions. By followingthe letter of the report, the Greek government has sought an unrealistic remedy that has littlecontractual merit. However pleading in terms of the relational contract theory, might in factprovide the Greek government's contract claims the voice that it deserves to efficiently androbustly reach its creditors. This relief, although not as convenient and advantageous asrevocation of the loan agreements, is a realistic remedy that is provided for within thepurview of contract law, and if employed with the same zeal as was used in the drafting of thereport, may make a convincing claim for Greece, to have even the upper hand in thenegotiations. This is crucial given the propagating effect of the Greek debt crisis at this time.However, this significance will have implications that reach far beyond the Mediterranean,but for all sovereign debtors, as it would allow for classical contract law to provide anargument for a relational contract remedy, perhaps adding a Greco twist on the old Latinadage, caveat emptor, to endure in the future of contract law.

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J. Herbie DiFonzo, B.S., J.D., M.A., Ph.D., Professor of Law

Janet L. Dolgin, B.A., M.A., Ph.D., J.D., Jack and Freda Dicker Distinguished

Professor of Health Care Law; Professor of Science Education, Hofstra Northwell

School of Medicine; Co-director, Hofstra Bioethics Center, and Director, Gitenstein

Institute for Health Law and Policy

Tracy Dunbrook, B.A., J.D., LL.M., Visiting Assistant Professor of Law

Akilah N. Folami, B.A., J.D., Professor of Law

Susan Fortney, B.A., J.D., LL.M., J.S.D., Howard Lichtenstein Distinguished

Professor of Legal Ethics and Director of the Institute for the Study of Legal Ethics

Eric M. Freedman, B.A., J.D., M.A., Maurice A. Deane Distinguished Professor of

Constitutional Law

Leon Friedman, A.B., LL.B., Joseph Kushner Distinguished Professor of Civil

Liberties Law

Linda Galler, B.A., J.D., LL.M., Professor of Law

Mitchell Gans, B.B.A., J.D., Rivkin Radler Distinguished Professor of Law

The Honorable Kenneth L. Gartner, B.A., J.D., Special Professor of Law

Ashleigh Garvey, Special Professor of Law

Dolores Gebhardt, B.S., J.D., Special Professor of Law

James F. Gesualdi, Esq., B.A., M.A., J.D., Special Professor of Law

George Giuliani, B.A., M.S., M.A., J.D., Psy.D., Special Professor of Law

Scott J. Glick, B.A., J.D., Director of the Hofstra Law in D. C. Externship Program

and Special Professor of Law

Barry Goldberg, Special Professor of Law

Daniel J. H. Greenwood, A.B., J.D., Professor of Law

John DeWitt Gregory, B.A., J.D., Sidney and Walter Siben Distinguished Professor

of Family Law

Joanna L. Grossman, B.A., J.D. Professor of Law

Frank Gulino, B.A., J.D., Associate Professor of Legal Writing

Jennifer A. Gundlach, B.A., J.D., Clinical Professor of Law

Michael Haber, B.A., M.A., J.D., Associate Clinical Professor of Law and

Associate-in-Charge, Community and Economic Development Clinic

Marc L. HamroffSpecial Professor of Law

32



Robert Harper, Special Professor of Law

Carol Casazza Herman, B.A. J.D., Visiting Practitioner-in-Residence in

Environmental Law and Special Professor of Law

James Edward Hickey, Jr., B.S., J.D., Ph.D., Professor of Law

The Honorable Richard Horowitz, Special Professor of Law

John Hogan, Special Professor of Law

Bernard E. Jacob, B.A., J.D., Ph.D., Distinguished Professor Emeritus of Law

Michael D. Jaffe, B.A., J.D., Special Professor of Law

Alan Jakimo, B.A., M.B.A., J.D., Special Professor of Law

Susan H. Joffe, B.A., M.A., J.D., Professor of Legal Writing

Gary Kalbaugh, BCL, LL.M., Special Professor of Law

Kara Kaplan, Special Professor of Law

Elena Karabatos, Special Professor of Law

David A. Kaufman, B.A., J.D., Special Professor of Law

Lawrence Kessler, B.A., J.D., Richard . Cardali Distinguished Professor of Trial

Advocacy

Avi Z. Kestenbaum, B.S., J.D., LL.M., Special Professor of Law

Brian Klein, Special Professor of Law

Fred Klein, B.A., J.D., Visiting Assistant Professor of Law

Spencer Klein, Special Professor of Law

The Honorable Gary F. Knobel, B.A., J.D., LL.M., Special Professor of Law

Abe Krieger, Special Professor of Law

Stefan Krieger, B.A., J.D., Professor of Law, Director of Centerfor Applied Legal

Reasoning and Director Emeritus of Hofstra Clinical Programs

Julian Ku, B.A., J.D., Professor of Law and Faculty Director of International

Programs

Katrina Fischer Kuh, B.A., J.D., Professor of Law

Lawrence Kurland, Special Professor of Law

Eric Lane, B.A., M.A., J.D., LL.M., Dean and Eric J Schmertz Distinguished

Professor of Public Law and Public Service

Anibal Rosario Lebron, J.D., LL.M., Visiting Assistant Professor of Legal Writing

Richard G. Leland, B.S., J.D., Special Professor of Law

Theo Liebmann, B.A., J.D., Clinical Professor of Law and Director of Clinical

Programs

Barry Lites, Special Professor of Law

Kim Luckey, Special Professor of Law

33



Barbara A. Lukeman, B.A., J.D., Special Professor of Law

Andrew H. Lupu, B.A., J.D., Special Professor of Law

Malachy T. Mahon, B.A., J.D., Founding Dean Emeritus

Lewis R. Mandel, A.B., J.D., LL.M., Special Professor of Law

Irina D. Manta, B.A., J.D., Professor of Law and Director of the Center for

Intellectual Property Law at the Maurice A. Deane School of Law

Serge Martinez, B.A., J.D., Clinical Professor of Law

The Honorable Edward W. McCarty III, B.S., J.D., Special Professor of Law

Gerald McCloskey, Special Professor of Law

Kevin McElroy, B.A., J.D., Associate Professor of Legal Writing

Christopher T. McGrath, Special Professor of Law

Gerard Messina, Special Professor of Law

Janis Meyer, Special Professor of Law

Richard K. Neumann, Jr., B.A., Dipl., J.D., LL.M., Professor of Law

Christopher Nicolino, Special Professor of Law

Andrew Oringer, J.D., M.B.A., A.B., Special Professor of Law

Ashira Ostrow, B.A., J.D., Professor ofLawand Associate Dean for Research and

Faculty

Mark Padin, B.A., M.S., J.D., Associate Professor ofAcademic Support

Peter Parcher, Special Professor of Law

Curtis Pew, B.A., M.P.P.A., J.D., Visiting Clinical Professor of Law

Damian Pieper, Special Professor of Law

John Pieper, B.A., J.D., LL.M., Special Professor of Law

Troy Pieper, Special Professor of Law

Jack M. Platt, Esq., B.A., J.D., Special Professor of Law

Neal R. Platt, B.S., J.D., L.L.M., Special Professor of Law

Rona L. Platt, B.S., J.D., Special Professor of Law

Seth A. Presser, J.D., Special Professor of Law

Andrew Reiss, Special Professor of Law

Arianne Reyser, Special Professor of Law

Joseph Richetti, Special Professor of Law

John L. Rivkin, B.A., J.D., Special Professor of Law

Anibal Rosario Lebron, J.D., LL.M., Visiting Assistant Professor of Legal Writing

Jared Rosenblatt, Special Professor of Law

Paul Rubell, B.A., J.D., Special Professor of Law

Ben B. Rubinowitz, B.A., J.D., Special Professor of Law

James Sample, B.A., J.D., Professor of Law

34



Andrew Schepard, B.A., M.A., J.D., Professor of Law and Director of the Center

for Children, Families and the Law

Robert Schwenkel, Special Professor of Law

Courtney Selby, B.A., J.D., M.L.I.S., Associate Dean for Information Services,

Director of the Law Library & Associate Professor of Law

Rita Sethi, Special Professor of Law

Grant Shehigian, Special Professor of Law

Gregory H. Shill, B.A., M.A., J.D., Visiting Assistant Professor of Law

Norman I. Silber, B.A., M.A., Ph.D., J.D., Professor of Law

Jeffrey Silberfeld, B.A., J.D., Visiting Assistant Professor of Law

Ronald H. Silverman, B.A., J.D., Distinguished Professor Emeritus of Law

Roy D. Simon, B.A., J.D., Distinguished Professor of Emeritus of Law

William M. Skehan, B.A., M.B.A., J.D., Special Professor of Law

David Smith, Special Professor of Law

Judd Sneirson, B.A., J.D., Visiting Associate Professor of Law

Lisa Spar, B.A., J.D., M.S., Special Professor of Law

Barbara Stark, B.A., J.D., LL.M., Professor of Law and Hofstra Research Fellow,

Associate Dean for Intellectual Life

Amy R. Stein, B.A., J.D., Professor of Legal Writing, Assistant Dean for Adjunct

Instruction, and Coordinator of the Legal Writing Program

Michael Steinberg, Special Professor of Law

Jacob L. Stevens, B.A., J.D., Visiting Associate Clinical Professor of Law

Daniel M. Sullivan, B.A., J.D., Special Professor of Law

Michael Vecchione, Special Professor of Law

Robert Wagner, Visiting Assistant Professor of Law

Vern R. Walker, B.A., M.A., Ph.D., J.D., Professor of Law and Director of the

Research Laboratory for Law, Logic and Technology

Bennett J. Wasserman, B.A., M.A., J.D., Special Professor of Law

Stephen Weiner, B.A., J.D., Special Professor of Law

Joel Weintraub, A.B., M.D., J.D., Special Professor of Law

Karen Weiss, Visiting Assistant Professor of Legal Writing

Carolyn Reinach Wolf, B.A., M.B.A., M.S., J.D., Special Professor of Law

Lauris Wren, B.A., J.D., Clinical Professor of Law and Director for the LGBT

Fellowship

Patrick Young, Special Professor of Law

Elizabeth M. Nevins, B.A., J.D., Assistant Clinical Professor of Law Attorney-in

35



charge, Criminal Justice Clinic

FRANK G. ZARB SCHOOL OF BUSINESS

ADMINISTRATION

Barbara J. Church-Kattan, Director of Graduate Career Placement

Brian Caligiure, Assistant Dean for Administration

Dr. George Papaioannou, Vice Dean

Dr. Patrick J. Socci, Dean

Jeffrey D. Mon, Director of Recruitment

Kevin B. Taylor, Executive Director of Graduate Programs

Lisa A Welch, Associate director of Graduate Programs

Lisa A. Kellerman, Associate Director of Graduate Career Placement

Ms. Gioia P. Bales, Associate Dean

Patricia Salama, Director of Outreach Programs

FULL TIME FACULTY

Dr. Ahmet K. Karagozoglu, Professor of Banking & Finance

Dr. Andrew C. Spieler, Associate Professor of Banking & Finance

Dr. Andrew M. Forman, Associate Professor of Marketing & 1B

Dr. Anil Mathur, Chair, Department of Marketing & 1B

Dr. Anoop Rai, Professor of Banking & Finance

Dr. Anthony Basile, Professor ofAccounting & Legal Studies

Dr. Barry Berman, Professor of Marketing & 1B

Dr. Benny Barak, Professor of Marketing & 1B

Dr. Bernard H. Dickman, Associate Professor of QM/IT

Dr. Boonghee Yoo, Professor of Marketing & International Business

Dr. Charles A. McMellon, Associate Professor of Marketing & 1B

Dr. Charles H. Smith, Professor of Management, Entrepreneurship & GB

Dr. Cheryl R. Lehman, Professor ofAccounting & Legal Studies

Dr. Daniel Tinkelman, Associate Professor ofAccounting & Legal Studies

Dr. Dave Flynn, Professor of Management, Entrepreneurship & GB

Dr. David N. Sessions, Associate Professor of QM1IT

Dr. Deb Sledgianowski, Associate Professor ofAccounting & Legal Studies

Dr. Debra R. Comer, Professor of Management, Entrepreneurship & GB

Dr. Edward J. Zychowicz, Professor of Banking & Finance

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Dr. Ehsan Nikbakht, Professor Banking & Finance

Dr. Elaine R. Winston, Chair, Department ofIT/QM

Dr. Elaine Sherman, Professor Marketing & lB

Dr. Elizabeth K. Venuti, Chair, Department ofAccounting & Legal Studies

Dr. Farrokh Guiahi, Professor ofIT/QM

Dr. Janet A. Lenaghan, Professor of Management, Entrepreneurship & GB

Dr. Joel R. Evans, Professor of Marketing & 1B

Dr. John F. Affisco, Professor ofIT/QM

Dr. K. G. Viswanathan, Chair, Department of Banking & Finance

Dr. Kaushik Sengupta, Assoc. Professor of Management, Entrepreneurship & GB

Dr. Keun S. Lee, Associate Professor of Marketing & IB

Dr. Laura H. Lally, Professor ofIT/QM

Dr. Li-lian Gao, Chair, Dept. of Management, Entrepreneurship & GB

Dr. Lonnie K. Stevans, Associate Professor ofIT/QM

Dr. M. J. Paknejad, Professor of JT/QM

Dr. Mahesh Chandra, Associate Professor of JT/QM

Dr. Matthew C. Sonfield, Professor of Management, Entrepreneurship & GB

Dr. Meral Binbasioglu, Professor ofIT/QM

Dr. Mohammed H. Tafti, Professor ofIT/QM

Dr. Na Wang, Assistant Professor of Banking & Finance

Dr. Nancy A. White, Associate Professor of Banking & Finance

Dr. Nathan S. Slavin, Professor ofAccounting & Legal Studies

Dr. Ping Su, Asst. Professor of Management, Entrepreneurship & GB

Dr. Rahul K. Bishnoi, Associate Professor of Banking & Finance

Dr. Ralph S. Polimeni, Professor ofAccounting & Legal Studies

Dr. Richard C. Jones, Associate Professor ofAccounting & Legal Studies

Dr. Richard Hayes, Assoc. Professor of Management, Entrepreneurship & GB

Dr. Rick T. Wilson, Assistant Professor of Marketing & 1B

Dr. Robert D. Campbell, Professor of Banking & Finance

Dr. Robert Fonfeder, Professor ofAccounting & Legal Studies

Dr. Shawn T. Thelen, Associate Professor of Marketing & lB

Dr. Songpol Kulviwat, Associate Professor of Marketing & IB

Dr. Steven T. Petra, Associate Professor ofAccounting & Legal Studies

Dr. Wi S. Kim, Professor of Banking & Finance

Dr. William James, Professor of Marketing & IB

Dr. Yong Zhang, Professor of Marketing & lB

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Eugene T. Maccarrone, J.D, Associate Professor ofAccounting & Legal Studies

Martha S. Weisel J.D, Associate Professor ofAccounting & Legal Studies

Robert Katz J.D, Professor of Accounting & Legal Studies

Steven B. Krull, Associate Professor of Banking & Finance

Stuart L. Bass J.D, Professor ofAccounting & Legal Studies

Susan L. Martin J.D, Professor ofAccounting & Legal Studies

Victor Lopez J.D, Associate Professor ofAccounting & Legal Studies

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